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Abercrombie & Fitch heads into the holiday season with lowered expectations after a
third-quarter earnings report that showed both a sales slump and a loss, as it wrote off the cost
of closing its Gilly Hicks lingerie stores.

The next quarter doesn’t look much better, as the retailer expects a low double-digit decrease
in sales at stores open at least a year.

Based on that outlook, Abercrombie is now expecting earnings for the full year to be in the
range of $1.40 to $1.50 per share.

“In the near term, we are prepared for conditions to remain difficult in the fourth quarter and
intend to manage the business accordingly,” said CEO Michael Jeffries during a conference call with
analysts. “Young apparel is a very challenged business today.”

The New Albany-based retailer had predicted the downbeat news, so its shares closed virtually
unchanged for the day at $34.97, down 2 cents, not far off its 52-week low.

“The weak sales trend that began in July continued through the quarter,” Jeffries said. “While
the sales trend improved in October, this was largely related to a step-up in promotional activity”
and the effects of events of last year, including Hurricane Sandy.

Comparable-store sales, an important indicator of a retailer’s health, fell by 14 percent for
the company as a whole. U.S. sales also were down 14 percent while international sales fell 15
percent during the quarter.

Wall Street analysts were not optimistic about Amercrombie’s fortunes in the important fourth
quarter, predicting that intense competition among Abercrombie and its rivals will lead to
extensive discounting, which “will likely hold back results.”

Stifel Nicolaus analyst Richard Jaffe wrote in a note to investors that Abercrombie has other
problems, too.

“While the company is playing good defense by cutting expenses, this (report) does little to
revitalize what we believe is a stale brand,” Jaffe said. “In our opinion, additional steps need to
be taken, especially in the area of merchandise and design.”

In one design area — some of the stores themselves — changes will come as soon as next week.

“The louvers have been removed,” Jeffries said, referring to the windows on Hollister stores
that have gone against conventional practice for years by hiding the interior of the shop rather
than exposing it. “You will see more-aggressive marketing on those windows next week.”

During the quarter, the retailer opened five international Hollister chain stores, including its
first store in Japan, and an Abercrombie & Fitch flagship store in Seoul, South Korea. The
company also opened a combined Abercrombie & Fitch and abercrombie kids outlet and a Hollister
outlet in Italy.